ASST CIT 25(2), MUMBAI vs. VIJAY M VAGHANI, MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

1. "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in restricting of addition of Rs.46,50,981/- to Rs.6,97,647/- u/s 69C of the Act as profit on the bogus purchases." 2. "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in applying the ratio of Nikunj Eximp Enterprises Pvt. Ltd. and restricting the addition to 15% on such purchases on the ground that when the sales has been accepted by the department, the genuineness of the purchase cannot be doubted." 3. "On the fact and in the circumstances of the case and in law, the Ld CIT (A) erred in relying upon judgments in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd and CIT Vs. Leaders Valves(P) Ltd. without appreciating that the facts involved in the appellant's case are different from the facts of the above case law." 4. "On the fact and in the circumstances of the case and in law, the Ld CIT(A) has grossly erred in not appreciating the fact that the notices under section 133(6) issued to parties from whom alleged bills were received were returned undelivered by the postal authorities and the wand Inspector and the assessee has also failed to produce the parties before the AO:" 5. "On the fact and in the circumstances of the case and in law, the Ld CIT (A) has grossly erred in not appreciating the fact that assessee failed to avail the opportunity to produce the parties for disproving the statement given by them to Sales Tax Authority. 6. "On the fact and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition made by the AO overlooking the explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the AO." 7. "The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A. a be restored." 8. The appellant craves leave to amend or alter any ground or add a new ground.”

(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani The assessee has also prepared a C.O. which grounds raised are as under:-

1. On the facts and in the circumstances of the case the Hon. CIT(A) erred in treating Rs.6,97,647/- being 15% of purchase amount of Rs.46,50,981/- as profit of the appellant. 2. On the facts and in the circumstances of the case the Hon.CIT(A) failed to appreciate that the total purchases were explained and no addition was required. 3. Without prejudice the estimation of income at 15% of the said purchases is on the higher side.

(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani 4. Aggrieved by the order of CIT(A), the revenue and the assessee filed the present appeal and cross objections before us on the grounds mentioned herein above.

5. 'Decision: 5a., Unexplained expenditure u/s 69C –Rs.46,50,981/- I have gone through the AO's contention and the submission of the appellant in this regard, The main contention of the A,O, is that: (i) There is information available from the Sales Tax Department, Govt. of Maharashtra (ii) the said persons have given deposition before the Sales Tax Department, that they have only provided entries and have not actually supplied any material; (iii) The said parties could not be produced by the appellant;' (iv) The notices sent were either returned back with the ,comment 'left', 'closed' or 'none appeared.' and " , -- (iv) A field visit by the' Inspector also confirmed that no such concern existed at the given address. The appellant on the other hand has submitted that they have the audited accounts duly maintained, bills from the said parties and the bank statement evidencing the payments. The appellant has also submitted that it is involved in civil construction activity and the said material has been utilized at the construction site: In its support, the appellant has referred to the decision of M/s. Nikunj Enterprises wherein the Hon'ble Bombay' High Court has held that merely because the suppliers have not appeared before the, Assessing Officer or the, CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee, To this extent I am in agreement' with the "appellant that since the appellant' has filled its onus of making the .payments by cheque and has (A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani supplied the address of the sellers, then it cannot be presumed that the suppliers were bogus simply because the sellers were not found at the given addresses. However, it also at the same time cannot be said that the information provided by the mahavat and the depositions of the sellers before the Sales Tax Department of Maharashtra should not be taken cognizance of by the A.O. Therefore, following the ratio of Nikunj Eximp Enterprises cited supra and also the decision in the case of CIT vs. Leaders Valves (P) Ltd (also referred supra), the profit element on the total component in dispute is what needs to be added to the income of the appellant. The total amount which is being treated as bogus by the A.O. is Rs.46,50,981/-. 15% of this amount which is Rs.6,97,647/- is taken as profit of the appellant on purchases that are not fully and properly explained. 5b. Disallowance under section 40(a)(i)(a) - Rs.27,068/- I have gone through the facts of the disallowance made u/s 40(a)(ia) and I do not find any merit in the argument of the appellant. The payment is squarely covered and therefore liable for deduction u/s 194A and, therefore, the disallowance is upheld.”

Even during the course of arguments ld. AR appearing on behalf of assessee has also drawn our attention to page no. 24 &25 of paper book which is an order dated

(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani 08.04.2001passed by Deputy Commissioner of Sales Tax (Appeal) u/s.23(5) M- VAT Act 2002 and in the said order Deputy Commissioner of Sales Tax (Appeal) has also taken into consideration the purchases effected by the assessee are for his construction activities and in this regard deductions of sales tax have been made by modifying the assessment order passed under Sales Tax. This order also goes to show that the assessee had made purchases which had already been acknowledge by the Sales Tax department as being for their own construction and in addition the payments have also been made by cheques. Ld. CIT(A) in the present case has also given a categorical finding that since the assessee had already supplied the addresses of the sellers and if they are not coming forward or not found at the given addresses then it cannot be presumed that the suppliers were bogus.

In our view, once the purchases and sales are accepted as genuine, the authorities below cannot reject the purchases and make additions thereon merely on the basis of information received from the Sales Tax Department, without making any corroborative independent enquiry thereon and without allowing cross examination to the assessee of the party whose statement has been relied on. This proposition has been upheld by the co-ordinate benches in the cases of Rajeev Kalathil (67 SOT 52) and in the case of Hiralal Chunilal Jain and others dated 01.01.2016. The ld. CIT(A) has reduced the addition to 15% of the total amount of purchases, as profits resultant therefrom, but has not justified such (A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani explanation with any material evidence to establish that such profits were actually earned thereon. In these peculiar facts and circumstances of this case, we reverse the impugned order of the ld. CIT(A) and direct the AO to delete the addition of Rs.6,49,647/- sustained by the ld. CIT(A) and allow grounds of cross objection filed by the assessee. Consequently the grounds raised by the revenue in this appeal are dismissed.

8. In the result, the Revenue’s appeal is dismissed and assessee’s C.O. is allowed. Order pronounced in the open court on 30th September, 2016 Sd/- Sd/- (Jason P. Boaz) (Sandeep Gosain) लेखा सद�य / Accountant Member �या�यक सद�य / Judicial Member मुंबई Mumbai; �दनांक Dated : 30.09.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT - concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,